Technology Leaders Under Fire

By: Jim McGregor, Chief Technology Strategist, In-Stat
( 1 Nov 2009 )

In yet another ruling by an international government agency, Qualcomm was fined 260 billion won ($208 million) for unfair business practices associated with its CDMA chipset sales by South Korea’s Fair Trade Commission. The investigation centered around two common issues in the high-tech industry, rebates paid to customers and royalties paid by companies using competing chipsets. The action follows other fines by the South Korea FTC on Microsoft in 2006 and Intel in 2008. In addition, Intel has faced rulings by other government agencies in Japan and the EU, which were also accompanied by the largest ever fine of $1.45 billion. Likewise, Microsoft has faced fines by the EU in the past and continues to face government opposition in the region to certain business practices. The increasing frequency of these actions appears to mark a change in the willingness of governments to intervene in the high-tech industry at a time when industry consolidation is increasing, and increased scrutiny of the industry leaders, which tend to be US companies. In all fairness, the semiconductor memory market has faced its share of scrutiny, particularly by US regulators, in the past, but the recent activity is aimed at the leaders in the highest value segments of the industry – microprocessors, wireless chipsets, and software.

Unfortunately, the rulings and fines have little impact on the industry. Intel continues to increase its competitiveness against its sole rival, AMD, with new product offerings. Many of Qualcomm’s rivals are exiting the 3G baseband market and mass rollouts of next-generation 4G technologies like LTE are still several years off. In addition, it is unclear how Qualcomm’s patent portfolio will hold up to those of competitors in these new wireless technologies. And Microsoft is facing some changes in the business models for computing software, as well as a protracted battle with Google, but neither is likely to change the fate of Microsoft in the near term. Even with the tremendous fine imposed on Intel by the EU, the impact is minimal on a company that has produced annual revenues of over $24 billion and net income over $5.6 billion over the past three years and has over $9 billion in cash and short-term investments.

The argument is that the actions will set standards for the future, but if the damage is already done and the competitive landscape has been drastically changed, these actions are unlikely to have any meaningful impact. Unfortunately, there is no way to undo perceived wrongs in the industry unless governments are willing to constantly monitor the actions of all the industry participants, which it seems many governments are increasingly willing to undertake. For now, these actions seem to be little more than a signal to the industry leaders, especially the US companies that are often the companies that created the business models and standards for the industry, that they face increased scrutiny unless the competitive landscape changes in the future.